Industry executive with 59 years of institutional experience appalled by FXCM situation details all to FinanceFeeds

“I was told many moons ago that Mr Niv had an ‘in house’ price provider, but I discounted the ‘rumor’ telling those who told me, that no person could be that stupid to believe they could do such a thing without being caught out.”

Almost a week has elapsed since the US Commodity Futures Trading Commission (CFTC) took action against FXCM, one of the world’s largest and most highly respected OTC FX brokerages, after generating a comprehensive report that revealed its findings that FXCM’s US division had been trading against its customers for several years.

The milestone ruling which shocked the entire OTC derivatives industry detailed that FXCM had enlisted the services of an external market maker, of which FXCM had an undisclosed interest, to take the opposite positions of FXCM’s retail customers via an algorithmic system developed by FXCM, whilst all the while purporting publicly to be executing trades on an agency basis.

Senior directors Drew Niv and William Ahdout, along with FXCM are now banned from operating in the US, with 150 staff having been let go, and the company’s reputation in absolute tatters, share prices on the ground and litigation commencing.

Many executives across the FX industry have spoken to FinanceFeeds during the course of the last week to provide perspective, as this is a poignant event that may well change the entire global perspective on OTC execution and how to monitor it, as well as shatter any argument that the OTC industry has against the pressure mounting from the exchange fraternity to place retail trading on exchanges by default.

Today, FinanceFeeds spoke to a veteran of the FX industry, who has over 59 years worth of experience in institutional venues across the world from London to Hong Kong to Sydney, at senior level.

A highly well recognized executive, FinanceFeeds has granted anonymity on the basis that this particular executive is privy to a vast amount of detailed insde information.

The conversation began with an exclamation “FXCM is a disgrace!” he said.

“My ‘value judgements’ about doing business with them was based on their ‘no dealing desk’/no conflict of interests structure” he continued.

“I was told many moons ago that Mr Niv had an ‘in house’ price provider, but I discounted the ‘rumour’ telling those who told me, that no person could be that stupid to believe they could do such a thing without being caught out.”

“To me the arrogance of people doing such things clearly demonstrates that they do not have a competent view of the real world!” stated the industry executive.

“To me the demise of FXCM has been brought about by the worst kind of ‘spiv’ behaviour by telling/assuring clients of one business ‘morality’ position, and then conducting business with them by doing the opposite” he continued.

“Irrespective of the FXCM debacle I ask you the following question about whether you feel that there should be a league table available to all participants in the market to see the real positions [financially and operationally] of all FX brokers” he asked. FinanceFeeds cuncurs that this is a good idea and potentially beneficial to all industry participants in the quest for complete impartiality and transparency which would protect our industry from any doubt or defend against any regulatory ruling that could force OTC business onto exchanges.

This particular executive then detailed the background that he uses as an example for how the FXCM debacle can be held up as completely unacceptable.

“Many years ago I was a director of Australian Ratings Pty Ltd, which later became Standard and Poors of Australia” he said.

“I cannot stop reflecting and analysing in my mind the tragedy inflicted on the markets by the FXCM debacle. For all past major unexpected happenings I have experienced since I joined the London Stock Exchange trading floor in 1959, I have always considered immediately after the event, the opportunities for reforms to strengthen the framework of the structures fundamental to the operation of fair and just markets” he said.

“In London, I was a trainee dealer with Durlacher Co which had 90 individuals on the Floor of the London Stock Exchange, and we were ‘market makers’, known as stockjobbers” he explained.

“At that time our firm made prices in more than half of all stocks quoted on the Exchange. We ran a ‘book’ in all those stocks. Our customers were exclusively Stockbrokers.”

“We had zero access to any other institutions and Stockbrokers only bought and sold stocks via Stockjobbers. This system was well considered and designed by those who had the power to institute a system which prevented ‘conflicts of interest’ between dealers [principals] and brokers [agents]” he further explained.

“I was brought up in this system and I have championed it all of my life. At every opportunity, particularly when I was a financial journalist with Australia’s major daily newspaper, I hammered the difference between ‘principal’ and ‘agent’” he said. (FinanceFeeds has read all of this material, dating back to 1982 – Ed.)

In conclusion, he said “I used every opportunity offered to me to say that so called ‘Chinese Walls’ were only the invention of Institutions, such as the major US Wall Investment Banks, so that they could ‘legally’ take a principal position, and at the same time act as ‘so called’ agents.”

Bearing in mind the gravity of this situation, it is interesting that Britain’s Financial Conduct Authority (FCA) has not yet followed suit. Where there is smoke, there is usually fire.

Read this next

Retail FX

Finalto sweetens offering for African traders with localized FX pairs

Finalto, the financial trading division of Gopher Investments, announced today that it has extended its offering with inclusion of a number of African Pairs to its trading platforms.

Digital Assets

BitMEX secures OAM registration to operate in Italy

Crypto exchange BitMEX has won regulatory approval from Italy’s financial regulators, allowing the exchange to continue serving Italian customers.

Institutional FX

FlexTrade integrates Glimpse’s post-trade bond execution data

“Looking further ahead, this integration also presents multiple opportunities for how fixed-income traders could leverage the trading data. For example, traders could tap Glimpse data as an input to AI-driven automation workflow strategies in the future.”

Industry News

FINRA fines UBS $2.5m for Reg SHO violations and supervisory failures

FINRA has fined UBS $2.5 million for Reg SHO violations and supervisory failures spanning a period of nine years.

Digital Assets

Bitfinex Pay launches feature that minimizes volatility risk

The currency conversion will take place every five minutes on any amount above $10.

Digital Assets

Mastercard launches Crypto Secure for risk assessment in digital asset space

“Crypto Secure will provide card issuers with a platform that allows them access to insights which will improve the safety of crypto purchases, increasing consumer confidence and creating the same trust they expect when paying with Mastercard.”

Retail FX

VT Markets wins 4 more awards including Best Forex Mobile App Global 2022

“Over the past few months, we have noticed a huge spike in downloads and daily active users on the VT Markets App. Our clients can trade multiple asset classes with ultra-low spreads, and access timely market news on our mobile app.”

Institutional FX

Blue Ocean ATS enhances price discovery and liquidity for after hours US stock trading

Liquidity and price discovery, missing from previous overnight trading solutions, are now possible utilizing the TNS network and managed service platform. Security of the private network and its access to all public clouds, uniformity of compliance and regulatory oversight, redundancy and recovery capabilities, plus the localized customer service around the world made TNS the best candidate for this major step in Blue Ocean Technologies’ growth.

Executive Moves, Retail FX

Equiti Group wins CySEC license to expand into Europe

“Regulation and good governance have always been and will continue to be a key part of Equiti’s business model.”

<